Deficits, Bailout and Free Riders: Fiscal Elements of a European Constitution

Abstract

European economic and monetary integration provides further incentives to increase public deficits and debt in Europe. Spillover effects and free-riding strategies are likely to come into being in an EMU. As a response to this challenge, the authors propose the introduction of constitutional rules designed at containing deficits and debt on the European federal level. The institution of a popular referendum can help to keep European fiscal policies on a path that is in conformity with citizen-taxpayers' preferences. Copyright 1994 by WWZ and Helbing & Lichtenhahn Verlag AG